Debt Recovery

Can you just put a caveat on someone’s house?

If you are owed a substantial sum of money by someone, whether because you have loaned them funds or if you have a bill that hasn’t been paid, you would generally like to secure those funds. This way, if the borrower or debtor ends up being a bankrupt or insolvent, you may be in a better position as a secured creditor to those that are unsecured and hopefully you can get paid.

So how does security work? Security is effectively giving notice to the world that you have a claim on that person’s estate or assets so that subsequent people or businesses dealing with the same person are aware that you are to be paid in property, ie before them.

Security can be given in several ways, including:

  • handing over physical possession of certain assets;
  • the granting of  a Security Interest over assets registered on the Personal Property Securities Register (or “PPSR”); or
  • perhaps granting a Mortgage over real property owned by the person owing the money.

The registration of securities grants priority in order of registration, so it is important not to delay in registering any securities granted.

Ordinarily, you would have put in place a Loan Agreement or had Terms of Trade in place to govern your business relationship so that you have the express written consent to do such things to secure the debt, but if these documents are not in place before the financial obligation arises, people often take the step of lodging a caveat on title to property owned by the debtor.

A Caveat registered on title to a property has the effect (subject to the specific wording of the caveat of course) of preventing the owner or registered proprietor of that land from dealing with that land without the consent of the person who lodged the Caveat (the “caveator”). Dealings that can be prevented include lodging other Mortgages, lodging Transfers and the like.

Can you just put a caveat on someone’s house? If only things were that simple!

Many people have taken the step of lodging a Caveat on title to a debtor’s property only to have been unsuccessful in protecting their debt. Why? Well, in order to lodge a caveat (or even a Mortgage or PPSR Security Interest for that matter), you need to have the relevant asset “charged” in your favour with payment of the relevant debt. Creating a “charge” over an asset creates an interest in that asset that allows you to lodge a Caveat to notify and protect that interest.

A Caveat is not a document that gives you priority over previously registered interests, but it does give you some control over the asset such that you can prevent refinancing or a sale of an asset unless satisfactory arrangements for you to be paid have been made as part of that process  Properly drafted documents in relation to the lending of funds or business agreements where credit is extended should include things such as Mortgages, General Security Deeds or other things that create an interest in the asset sufficient to lodge a Mortgage, on title (to land), a Security Interest (on the PPSR in relation to assets etc) or at a minimum a Caveat over land.

Without such an interest being created, the caveator runs the risk that the owner can’t sell or refinance and suffers financially, then pursues the caveator for damages flowing from the caveator’s wrongful act, putting the caveator in an even worse position than they were before!

These things should not be done without proper advice, so take the time to review your current situation and documents now before a problem arises and have the documents updated to best protect you or your business.

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to debt recovery, loan agreements, estate planning, any business-related matter or if you have a Caveat lodged on your property without your consent, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au.

This information is general only and is not a substitute for proper legal advice. Please contact McKillop Legal to discuss your legal concerns or objectives.

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Do you have customers that owe you money?

WHAT OPTIONS ARE THERE TO CHASE DEBTS?

Where a customer has not complied with the terms on which goods or services have been provided, in that they have failed to make payment as and when required and despite repeated requests, it can often be of assistance for a demand letter to be sent by a lawyer.

The letter of demand will usually require payment in full by a defined time or may propose a payment plan with payment by instalments.

McKillop Legal is often called upon to advise in relation to debt recovery issues. We find that a strongly worded demand, clearly setting out the situation and seeking payment within a reasonable period usually results in payment.

There are various options available for business owners to recover moneys due.

If a letter of demand does not result in payment, there are various options available.

Where the debt is due by a company and the debt is more than $2,000 and it has not been disputed, a Creditor’s Statutory Demand can be issued under the Corporations Act giving the company 21 days to either pay the debt or to come to an arrangement to you for payment of the debt, failing which the company is presumed at law to be insolvent and can be wound up on application to the Supreme Court.

If an individual or partnership owes the debt, a company owes the debt and it is less than $2,000 or if a company debtor disputes the debt, then usually the commencement of proceedings will be necessary (and you would need to weigh up the costs and benefits of doing so to make a commercially sensible decision).

If the debt is over $5,000 and the debt is the subject of a judgment of a court, you can issue a Bankruptcy Notice. A Bankruptcy Notice provides for payment of the debt or a satisfactory arrangement for payment of the debt to be made within 21 days, failing which an “act of bankruptcy” has been committed, entitling you to commence proceedings in for a bankruptcy/sequestration order.

Options for enforcement of judgments also include:

  • Garnishee orders
  • Write of Execution over property – where the Sheriff sells personal property, land etc
  • Instalment orders

FURTHER INFORMATION

Craig Pryor is principal solicitor at McKillop Legal. For further information in relation to business succession, estate planning, litigation and dispute resolution or any commercial law matter, contact Craig Pryor on (02) 9521 2455 or email craig@mckilloplegal.com.au